Search
Posted by Macquarie Asset Management
July 01, 2021
David Roberts
Eric Wurtzebach
This interview first appeared in IPE Real Assets published on 29 June 2021.
Importantly, the health pandemic has accelerated trends that were already well established in the pre-COVID environment.
For industrial, the adjustment in online spending which was taking place in the pre-COVID environment has been brought forward given consumers have been forced to adjust their spending habits almost overnight.
Online sales have also been boosted by increased working from home (easier to buy goods online and receive deliveries at home), strong detached housing markets (which typically boosts spending via wealth impacts and desire to renovate an appreciating asset) and a shift away from services consumption, at least temporarily.
We expect some of these shifts to unwind as economies continue to open but that overall sales are likely to grow over the medium term given the ease and convenience of online shopping.
For example, Green Street is currently projecting that US online sales will grow to 30% of total sales by 2030 from around 15% in 2020.
We see solid online sales projections as related to demographics and in particular the bulge in the millennials population in key developed markets over the past decade.
As this tech-savvy group (currently aged between 26-40 years) progresses with their careers and moves into larger living spaces to start families and accommodate remote working trends, online sales are expected to rise at a stronger pace than overall spending.
The boost to online sales is underpinning demand for large distribution centres and smaller infill facilities across markets.
Many occupiers are responding to the shift in consumer preferences by expanding their overall requirements and moving into modern facilities to improve their supply chains and delivery times to consumers.
Large distribution centres have continued to be in strong demand from large global operators and investors.
At the same time, demand for last mile facilities has been accelerated by COVID-19 disruptions due to requirements for getting goods quickly to consumers, including food and other essentials.
The cyclical recovery in global trade and manufacturing is adding to industrial demand, particularly in and around major ports and transport hubs.
The sector may also benefit from rising inventories if retailers and wholesalers replenish stocks and shift from ‘just-in-time’ inventory management to a ‘just-in-case’ approach.
Medium term increased re-shoring or near-shoring of production may provide further demand as importers and governments look to shore up their supply chains.
Globally, we continue to see cross border capital shifting into the industrial sector (alongside residential) at the expense of retail with COVID-19 accelerating the shift (Chart 1).
Source: RCA, as at June 2021
Investment appetite for the sector remains significant given the headwinds facing other traditional sectors such as retail and secondary office exposure given working from home shifts.
As with leasing activity, a volatile macroeconomic backdrop and pandemic were not enough to deter investment activity. Globally, transaction activity totalled $US169 billion for 2020 just -1% below prior year levels. This compares to a fall of -25% in aggregate across all other sectors.
Transactions have remained strong this year as investors look to increase their exposure to the sector with investment volumes in the year to May marginally higher than the same period of 2020.
Over the past decade, the industrial sector has developed into a fully-fledged core asset class.
Pricing has rerated accordingly with cap rates below CBD offices in certain markets, such as the US and UK, which we believe reflects solid fundamentals and rental growth potential relative to other sectors.
Early movers in the sector are generally comfortable with their existing industrial portfolios and are either looking to take more risk via development or partnering with their existing operator partners.
Others that have long being focused on core office and retail strategies have a lower exposure to industrial and, alongside those with core-only strategies, may be looking to increase their exposure.
We believe demand for industrial exposure is likely to remain strong over the medium-term supporting development activity and exit strategies.
Our insights
Our insights
Our insights
This market commentary has been prepared for general informational purposes by the authors, who are part of Macquarie Asset Management, a business of Macquarie Group (Macquarie), and is not a product of the Macquarie Research Department. This market commentary reflects the views of the authors and statements in it may differ from the views of others in MAM or of other Macquarie divisions or groups, including Macquarie Research. This market commentary has not been prepared to comply with requirements designed to promote the independence of investment research and is accordingly not subject to any prohibition on dealing ahead of the dissemination of investment research. Nothing in this market commentary shall be construed as a solicitation to buy or sell any security or other product, or to engage in or refrain from engaging in any transaction. Macquarie conducts a global full-service, integrated investment banking, asset management, and brokerage business. Macquarie may do, and seek to do, business with any of the companies covered in this market commentary. Macquarie has investment banking and other business relationships with a significant number of companies, which may include companies that are discussed in this commentary, and may have positions in financial instruments or other financial interests in the subject matter of this market commentary. As a result, investors should be aware that Macquarie may have a conflict of interest that could affect the objectivity of this market commentary. In preparing this market commentary, we did not take into account the investment objectives, financial situation or needs of any particular client. You should not make an investment decision on the basis of this market commentary. Before making an investment decision you need to consider, with or without the assistance of an adviser, whether the investment is appropriate in light of your particular investment needs, objectives and financial circumstances. Macquarie salespeople, traders and other professionals may provide oral or written market commentary, analysis, trading strategies or research products to Macquarie’s clients that reflect opinions which are different from or contrary to the opinions expressed in this market commentary. Macquarie’s asset management business (including MAM), principal trading desks and investing businesses may make investment decisions that are inconsistent with the views expressed in this commentary. There are risks involved in investing. The price of securities and other financial products can and does fluctuate, and an individual security or financial product may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international or local financial, market, economic, tax or regulatory conditions, which may adversely affect the value of the investment. This market commentary is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in this market commentary. Opinions, information, and data in this market commentary are as of the date indicated on the cover and subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this market commentary and/or further communication in relation to this market commentary. Some of the data in this market commentary may be sourced from information and materials published by government or industry bodies or agencies, however this market commentary is neither endorsed or certified by any such bodies or agencies. This market commentary does not constitute legal, tax accounting or investment advice. Recipients should independently evaluate any specific investment in consultation with their legal, tax, accounting, and investment advisors. Past performance is not indicative of future results.
This market commentary may include forward-looking statements, forecasts, estimates, projections, opinions and investment theses, which may be identified by the use of terminology such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “can”, “plan”, “will”, “would”, “should”, “seek”, “project”, “continue”, “target” and similar expressions. No representation is made or will be made that any forward-looking statements will be achieved or will prove to be correct or that any assumptions on which such statements may be based are reasonable. A number of factors could cause actual future results and operations to vary materially and adversely from the forward-looking statements. Qualitative statements regarding political, regulatory, market and economic environments and opportunities are based on the [authors’ // relevant MAM team’s] opinion, belief and judgment.
Other than Macquarie Bank Limited ABN 46 008 583 542 (MBL), none of the entities noted in this document is an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) or banking legislation in other jurisdictions. The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities.
© Macquarie Group Limited
This information is a general description of Macquarie Asset Management only. Before acting on any information, you should consider the appropriateness of it having regard to your particular objectives, financial situation and needs and seek advice. No information set out above constitutes advice, an advertisement, an invitation, an offer or a solicitation, to buy or sell any financial product or security or to engage in any investment activity, or an offer of any banking or financial service. Some products and/or services mentioned on this website may not be suitable for you and may not be available in all jurisdictions.
The Macquarie Group entities noted on this page are not authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia). Their obligations do not represent deposits or other liabilities of Macquarie Bank Limited (ABN 46 008 583 542) (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of those entities.
The Fund information on this website is general in nature. All securities and financial product or instrument transactions involve risks. Past performance is not a reliable indication of future performance.
